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Measurement of risk spillover effect based on EV-Copula method

Author

Listed:
  • Yuexu Zhao

    (Hangzhou Dianzi University)

  • Weiqi Xu

    (Hangzhou Dianzi University)

Abstract

Based on the extreme value theory, copula function, and conditional value at risk (Abbreviated as CoVaR) model, an extreme value copula CoVaR (EV-Copula CoVaR) model is established. In application, the risk spillover effect of the carbon trading market on the stock market of China is investigated. Firstly, using the index synthesis method, the carbon trading price index is synthesized through the price data of the test area of carbon emission, then the risk spillover effect of the carbon market is measured by the EV-Copula CoVaR, and the dynamic risk spillover ΔCoVaR of the carbon market to each stock market is investigated. Finally, the downside ΔCoVaR under different significance levels is measured, and the relationship between the self-risk and spillover risk of the carbon market is explored, the largest risk spillover effect to the stock market is the electricity market. The smaller the significance level, the greater the carbon market self-risk, and the greater the risk spillover of the carbon market to the stock market, which shows that there is a positive correlation between them.

Suggested Citation

  • Yuexu Zhao & Weiqi Xu, 2023. "Measurement of risk spillover effect based on EV-Copula method," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-10, December.
    • Handle: RePEc:pal:palcom:v:10:y:2023:i:1:d:10.1057_s41599-023-02287-5
    DOI: 10.1057/s41599-023-02287-5
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